Ilyce Glink Show Notes – February 28, 2010

Investing, Home Buyer Tax Credit, Tax Questions

This Week’s Housing News:

The news wasn’t that great for housing this week. New home sales fell 11.2 percent in January, to 309,000 units. That’s the lowest number on record, and records go back decades, and well below the 350,000 units sold that economists were expecting. This is on top of a huge drop in December’s new housing sales.

At the peak of the housing book in the summer of 2005, new homes were selling at an annualized rate of 1.5 million homes per year.

There wasn’t much good news on existing home sales either. The National Association of Realtors reported that existing home sales fell 7 percent in January to 5.05 million (annualized). That was about 20 percent below economists prediction of 5.5 million in annualized sales. That was also the second biggest decline (second only to December 2009, in which existing home sales fell 16.2 percent) in the 11 years the data has been collected, Barron’s noted.

The looming issue of shadow inventory (homes that have been foreclosed on but haven’t been released yet for sale by the banks or Fannie Mae or Freddie Mac) makes real estate observers wonder about the true level of housing inventory. It’s rising, but no one really knows by how much.

Legendary investor Warren Buffet said in his annual letter to shareholders this week that he believes the housing industry will largely be back by 2011 in terms of supply and demand. I guess he means that supply will roughly equal demand.

We’ll see. As far as I’m concerned, if you don’t have a job, you’re not buying a house. And, if you’ve been delinquent or foreclosed upon or completed a short sale, you’re not buying either. It will be interesting to see where demand comes from.

Use This Discount Code To Get 40% Off The Ticket Price: clint

Read my new Investing Blog at our RealWorldSeminars.com site and be sure to check our who are our speakers – we’ll be uploading their photos and bios all week. So, check back often or follow me on Twitter.com/Glink to find out who is speaking and when.

Department of Labor – COBRA Continuation Legislation

We had a call about qualifying for a COBRA tax credit. According to the Dept. of Labor’s website: Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. To qualify, individuals must experience a COBRA qualifying event that is the involuntary termination of a covered employee’s employment. The involuntary termination must occur during the period that began September 1, 2008 and ends on February 28, 2010. The premium reduction applies to periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 months.

Unemployment Insurance Extension Hits A Wall In the Senate

There are more than a million unemployed Americans whose unemployment benefits will run out this week unless Congress passes another extension. On the show this morning, I said that I didn’t see any way this would pass before the benefits ran out but that I thought not passing another extension was lunacy.

Unless you want some sort of civil uprising brought about by people who simply can’t feed themselves or their children, Congress needs to get their act together and pass an extension.

It isn’t as though people aren’t trying to get a job. It’s that the JOBS SIMPLY DON’T EXIST AT THE MOMENT. There are still about 6 people applying for every job.

“Kentucky’s Republican Sen. Jim Bunning managed to stop passage of a measure that includes a 30-day extension of unemployment benefits. Bunning demanded that the Senate find $10 billion worth of cuts to pay for the larger package of government programs that includes loans for small businesses, money for highway projects, an extension of the National Flood Insurance Program and subsidies for health insurance premiums made through the COBRA program.”

Apparently, the House passed a resolution extending unemployment benefits on Thursday. The Senate’s version is being held up only by Sen. Bunning.

Finding Great Tenants And Profitably Managing Real Estate Investments. If you don’t have good tenants, you’ll wind up with losing money with your real estate investment – or perhaps destroying your credit. This ebook tells you how to find great tenants, how to price your unit to rent, and how to manage your property effectively and efficiently.

You can get a FREE copy of my book 50 Simple Steps You Can Take to Disaster Proof Your Finances” or “The REALLY Useful Guide to Working Smarter Not Harder” at the ThinkGlink.com store. You pay the shipping and we’ll send you any number of books for free!

Order Your ThinkGlink Ebook or Free Book Today!

Buy 3 Ebooks and Get 1 Free Ebook DEAL!

If you select 3 ebooks from our store and enter the discount code “freeebook” (no quotes), you’ll get one of those ebooks for free. It works with all of our ebooks. Just use the code to get the discount. It will show up when you check out of the ThinkGlink store.

Lynn’s Question on Refinancing

Lynn called the show today. She’s 18 months into a 15/1 adjustable rate mortgage at 4.75 percent. She’s wondering if she should refinance again to a 5/1 ARM at 3.5 percent and try to pay off the loan in the next 5 to 7 years.

Let’s assume that 18 months ago, Lynn got at 15-year loan for $150,000 at 4.75 percent. Her monthly payments would be $1,166.
Now, let’s assume that Lynn is looking to refinance her loan for the remaining balance, which would be $138,716. She has 13.5 years left on the loan so let’s assume she amortizes to pay off the loan in that time, so she isn’t adding to the loan term.

She’s going to save $58 per month. Assuming it costs her $2,000 to pay for her refinance, it will take 40 months, or more than 3 years, to pay off the costs of the refinance. But she would save a lot in interest on refinance. on her current loan, she has nearly $50,000 in interest left on the loan. But on the new loan, she’d pay just $35,000 in interest, a savings of $15,000.

However, there is a risk that the interest rate won’t hold steady at 3.5 percent over the entire 15 year term. In fact, I can promise you it will go up.

As you’ll recall, Lynn said she thought she could pay off the loan entirely in maybe 6 to 10 years, which is when she’s planning to retire. If that’s the case, then there’s very little to lose by refinancing. While taking 3 years to recoup costs isn’t great, Lynn will save anywhere from $15,000 to $20,000 in interest, depending on how quickly she can pay off the loan.

Related Sites

Newsletter

Definitioner

A Tax Credit is an amount by which tax owed is reduced directly. In other words, a dollar-for-dollar amount is subtracted directly from the taxes you owe.

Real Estate

Real Estate is land and anything permanently attached to it, such as buildings and improvements.

Ownership

Ownership is the absolute right to use, enjoy, and dispose of property. You own it!

Mortgage

A Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home.

Loan

A Loan is an amount of money that is lent to a borrower, who agrees to repay it plus interest.

Interest Rate

Interest rate is the percent of money charged for for the use of borrowed funds. Generally it is noted on an annual basis when the interest is earned and expressed as the annual percentage yield (APY) or annual percentage rate (APR).

Discount

Newly-issued bonds are typically sold at some sort of Discount. So a bond that has a face value of $1,000 and sells for $925 has a $75 discount. When interest rates rise, bonds are discounted more because you need a less expensive bond to achieve the same interest rate.